A growing list of delayed or cancelled projects, seen by some investors as a healthy move by majors to rein in capital spend after a poor history of returns is working its way through corporate earnings; it has already pummelled the share price of some European suppliers seen as financially fragile.

Fugro, once seen as a blue-chip on Amsterdam’s benchmark index, has had more than 30 percent of its stock-market value wiped out in a week since scrapping its dividend. It is seeing trade swings more suited to a small-sized firm: on Thursday its one-day gain was 28 percent.

The worst of this volatility may yet be to come, analysts and fund managers warn, as the recent fall in oil prices – triggered by a supply glut as well as worries over cooling demand – and the delayed effect of capital-expenditure cuts keeps up the pressure on companies to plug balance-sheet gaps.

“Oil services firms are like euro zone banks a few years ago. There’s a lot of damage in the sector and it could get worse before it gets better,” said Arnaud Scarpaci, fund manager at Montaigne Capital.

And that in turn may tarnish the long-term appeal of an energy sector that has consistently been among the top dividend-paying industries since the financial crisis, representing around $41.6 billion in total payouts for the second quarter of 2014 alone, according to data from Henderson Global Investors.

According to analysts at Nomura, Norwegian oil-drilling contractor Seadrill is one example of a firm that could fill an expected funding gap in 2015 by cutting dividends. Seadrill declined to comment.

“Everybody’s concern is that we are in a deteriorating market (for suppliers),” said KBC analyst Dirk Verbiesen.

OIL SLICK

Brent crude prices have tumbled nearly 30 percent in the past five months, to $82 a barrel – a level not seen in four years, with some expecting the supply-demand mismatch to get worse. A recent Reuters poll of economists and analysts shows that Brent is seen averaging $93.70 in 2015 and $96.00 in 2016.

This has caught oil majors, not just suppliers, off-guard – French group Total for example still uses $100 per barrel in its projections – and is starting to seriously dampen their plans to ramp up investment.

But oil majors by and large are bigger and more diversified than their suppliers, allowing them leeway to protect payouts. BP even announced a dividend increase last month.

So while Fugro and peers like Petroleum Geo Services and CGG are facing these pressures with a net-debt-to-EBITDA ratio of between 1.9 and 2.8, according to Reuters data, more diversified oil majors like BP and Royal Dutch Shell are at between 0.5 and 0.8.

“The fall in oil prices is unlikely to incite oil companies to invest in the short term…This has dragged down the oil-services sector but it has also been made worse in certain cases, including Fugro, by stretched balance sheets,” said Alain Parent, an analyst at Natixis in Paris.

Reached for comment, Fugro said its business had “compelling long-term potential” but that it faced challenging mid-term market conditions as a result of spending cutbacks. It did however say that it might benefit from a new era of no-frills services by offering more standardised products.

This week, France’s CGG posted a brutal 24 percent drop in quarterly revenue as the group scrambles to reduce the size of its seismic survey fleet, while Norway’s Aker Solutions warned that oil companies could further delay major projects.

Seeing blood in the water, hedge fund short sellers have been circling shares of oil services companies, with CGG, Fugro and Seadrill featuring among the most shorted stocks in Europe, with between 8 and 10 percent of their shares out on loan, according to Markit data.

Marshall Wace, Citadel and Oxford AM declined to comment, while officials for AQR and BlackRock were not immediately available.

Officials from Petroleum Geo-Services could not be reached immediately. A spokesman for CGG referred to comments made on Thursday by the company’s CEO Jean-Georges Malcor, who said the group has already made a lot of adjustments and cost cuts to cope with order cancellations and an oil price around $80.

Montaigne Capital’s Scarpaci warned that sharp rebounds in prices like the ones seen on Thursday in a number of stocks could happen in the coming weeks, given the bearish consensus and the high level of short selling.

“The level of pessimism is reaching a high point on both crude oil prices and the sector’s shares, so there’s a risk of short-lived rebounds and short-covering rallies.”

Also, some investors feel that the sector is in a state of overcapacity and that fragile firms that eventually merge or drop out will allow stronger players to mop up market share.

But given the long road ahead for the sector’s clean-up, the likelihood is that these stocks face big short-term price moves rather than a quick shift in long-term investor sentiment. (Additional reporting by Vikram Subhedar in London and Thomas Escritt in Amsterdam; editing by Philippa Fletcher)